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Pagano Co. v. 48 South Franklin Turnpike


March 3, 2008


On appeal from Superior Court of New Jersey, Law Division, Bergen County, L-5123-05.

Per curiam.


Argued January 15, 2008

Before Judges Fuentes, Grall and Chambers.

Defendant 48 South Franklin Turnpike, LLC appeals from the Judgment of April 3, 2007, holding it liable to plaintiff Pagano Company (Pagano) for commissions. We reverse since defendant never contractually agreed to pay Pagano commissions.

The case was submitted to the trial court on stipulated facts and pertinent legal documents. This record discloses that Pagano is a licensed real estate broker in the State of New Jersey. On February 24, 1997, it entered into a written Exclusive Leasing Agreement and Schedule of Lease Commissions (broker contract) with Heritage III Office Center (Heritage), the owner of commercial property located at 48 South Franklin Turnpike, Ramsey. Under the provisions of the broker contract, Heritage gave Pagano the exclusive right to procure tenants and negotiate leases for the premises. In exchange for these services, the broker's contract required Heritage to pay Pagano five percent commissions on the total lease price, including lease options, extensions and renewals on the tenants it procured. Pagano procured three tenants for the premises. The broker contract expressly provided that it would "be binding upon the heirs, successors and assigns" of Pagano and Heritage.

On September 20, 2004, defendant acquired the property. As part of that transaction, defendant accepted assignment of the leases burdening the property, and became obligated as a landlord under those leases. The lease assignment document provided that defendant "assumes and agrees to perform all of Assignor's [Heritage's] obligations under the Leases." Defendant was not assigned the broker contract, nor did defendant enter into any contract directly with Pagano.

Pagano argues that defendant is liable for the commissions on the leases due to language in the Leases with the three tenants. Paragraph 41 of each lease provides, in pertinent part: "APPLICABILITY TO HEIRS AND ASSIGNS: The provisions of this Lease shall apply to, bind and inure to the benefit of Lessor and Lessee, and their respective heirs, successors, legal representatives and assigns."

Paragraph 44 of each lease provides:

BROKER: Lessee represents and warrants to Lessor that Pagano Company is the exclusive broker with whom Lessee has negotiated in bringing about this Lease. Lessor represents and warrants to Lessee that Lessor dealt exclusively with Pagano Company and that by separate commission agreement and letter of understanding said broker shall be paid a commission by Lessor. In consideration of the foregoing, Lessor agrees to fully satisfy its obligations to said broker for commissions and covenants and agrees to indemnify and save Lessee harmless with respect to the claims of said broker for said commissions. Lessor and Lessee agree to hold the other harmless from the claims of any and all other brokers arising out of or in connection with negotiations of or entering into this Lease by Lessor and Lessee to the extent inconsistent with their respective representation.

The trial court concluded that defendant had affirmatively assumed the obligation to pay the broker's commission on the leases. The trial court further found that "an inequitable result would occur and defendant would benefit from unjust enrichment, if defendant would be entitled to the benefits of the Assignment of Leases, without absorbing one of the Lessor's expenses arising from the origination of the tenancies, i.e., the payment of the broker's commission." Judgment was entered on April 3, 2007, in the sum of $17,410.20, in favor of plaintiff.

Since the case was submitted on stipulated facts, our review focuses on the legal obligations that arose from these facts. The trial judge's interpretation of the law and the legal consequences that flow from the facts is not entitled to any special deference from us. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We must conduct a de novo review of the trial judge's conclusions of law. Kas Oriental Rugs, Inc. v. Ellman, 394 N.J. Super. 278, 285-86 (App. Div.), certif. denied, 192 N.J. 74 (2007).

At the outset, we note that in circumstances where the seller of real estate has a contract with a broker who is entitled to certain commissions from future rents, a purchaser of the property is not responsible for those commissions "unless the purchaser affirmatively assumes that obligation." VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 556 (1994). Thus, for defendant to be liable for the commissions, defendant must have affirmatively assumed that obligation. One way a purchaser may assume the obligation is through a provision in the assigned lease which sets forth a promise to pay the commission. See Bacharach v. Mitnick, 121 N.J.L. 401, 403-04 (Sup. Ct. 1938) (finding purchaser liable for commissions where assumed lease expressly provided that "Lessor agrees with said agents [broker] that they shall be and remain agents for said Lessor," required the broker's commission to be paid by the lessor or the lessor's assignee, and specified how the commission would be calculated).

Nowhere in this record has defendant agreed to pay any commissions to Pagano. Defendant merely agreed to assume all of the lessor's obligations in the leases. The only obligation the lessor has in the leases regarding the broker's commissions is the duty to indemnify and hold the tenants harmless for claims of the broker. Paragraph 44 of each lease states that "Lessor represents and warrants to Lessee that Lessor has dealt exclusively with Pagano Company and that by separate commission agreement letter of understanding said broker shall be paid a commission by Lessor."*fn1 This sentence is a representation and warranty to the tenants, not the undertaking of an affirmative obligation to Pagano. The sentence further expressly states that the lessor's obligations to the broker are determined in a separate brokerage agreement. Thus, Pagano's right to commissions arises from the separate brokerage agreement and not from the lease. The balance of paragraph 44 requires the lessor to pay its obligations to Pagano and to indemnify and hold the tenants harmless if Pagano makes claims against the tenants for broker's commissions.

The provisions in the leases reflect the agreement between the lessor and lessees setting forth their rights and obligations to each other. Pagano is not a party to the leases, and no promises are made to Pagano in the leases. Nowhere in the contract, closing documents, assignment, or indeed in any other document did defendant make a promise to either Heritage or Pagano to pay commissions to Pagano.

This case is distinguished from Bacharach, noted above, where the lease itself contained the language obliging the lessor to pay the brokerage commission and included the terms of the commission arrangement. See Bacharach v. Mitnick, supra, 121 N.J.L. at 403. In sum, defendant made no affirmative agreement to pay Pagano broker commissions.

No argument has been made that the language in the documents is ambiguous nor is any evidence presented that would resolve any purported ambiguity in favor of plaintiff. No other legal theory has been proferred to support plaintiff's claim. We note that the trial judge stated that it would be inequitable and defendant would be unjustly enriched if it were allowed to enjoy the benefit of the rents from the leases without paying the commissions. However, there are no proofs in the record to support such a conclusion. If defendant knew it was going to be responsible for commissions, it may have declined to purchase the property or it may have been able to negotiate a lesser sale price. The court certainly will not make a better contract for a party than the one it made. Graziano v. Grant, 326 N.J. Super. 328, 342 (App. Div. 1999).

For all of these reasons, the entry of judgment against defendant is reversed.

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